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Hmm...I guess that makes sense. It certainly makes things easier. However, it also means that if a person converts early or midway through the year and there is a sizeable tax bill owed, then at the end of the year (like last December when the stock market took a nose dive) if there is a drop in the account and the account value is worth much less, then you would be paying taxes on an account that fell in value and should be paying less taxes on it.

On the other hand, if you make the conversion early or midway through the year, and it goes up a lot in December, do you feel like you should be paying more in taxes? I'm guessing not - you're probably saying something like 'glad I converted when I did'. Besides that, as long as you didn't sell in December of last year and just kept everything, most (if not all) of the losses were probably recouped by March or April of this year.

I think there was an article about some change in the laws regarding conversions back to an ira in scenerios like the one above where people who had converted earlier in the year then wanted to reconvert back because the value of the acct fell but they had to pay taxes (like being in the bucket) on non-existent gains come end of year. The new changes somehow prevented the ability to reconvert or made it harder...or there was some deadline for it. Need to find that article again.

Before the TCJA, you were able to recharacterize conversions to a Roth, so that you could 'fix' the problem of paying more in taxes on assets that had dropped significantly in value, by recharacterizing the conversion back into a Traditional IRA. However, because there was a waiting time between when you recharacterized and when you could do another conversion, if the assets rose again in value before the waiting period was up, you may have ended up paying as much or more in taxes.

The TCJA did eliminate the ability to recharacterize Roth conversions, so this form of market timing is no longer an option.

That would be a good reason to wait until near the end of the year.

Except that if the assets in your Traditional IRA go up significantly in value between early/mid-year and the end of the year, you could end up paying significantly more in taxes by waiting to convert.

If you're worried about the difference in taxes, you could do a form of dollar cost averaging. Say you have 1200 shares of a stock that you want to convert. Just convert 100 shares on, say, the 10th trading day of every month, whether the stock has gone up, down or sideways. You will convert 1200 shares during the year, at 12 different price points. That should be enough price points that you will have participated in most of the up/down performance during the year.

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